THE ALL WEATHER STORY

how bridgewater associates created the all weather investment
strategy, the foundation of the ‘risk parity’ movement.
on sunday night, august 15, 1971,
President Richard Nixon sat in the Oval Office staring into a
television camera and addressed the nation: “I directed Secretary
Connelly to suspend temporarily the convertibility of the dollar
into gold.” After 27 years of relative monetary stability, the
United States was breaking from the Bretton Woods system of
fixed exchange rates that had tied the dollar’s value to gold.

Ray said, “that was a lesson for me. I developed a modus operandi
to expect surprises. I learned not to let my experiences dominate
my thinking; I could go beyond my experiences to see how the
machine works."
Ray realized he could understand the economic machine by
breaking down economies and markets into their component
pieces, and studying the relationships of these pieces through
time. This type of thinking is central to All Weather. For
instance, any market move can be broken down into a few
key components. Markets move based on shifts in conditions
relative to the conditions that are priced in. This is the definition
of a surprise. The greater the discrepancy, the larger the
surprise. That explained the Nixon rally. When countries have
too much debt and their lenders won’t lend them more, they
are squeezed. They, in this case the US, invariably print money
to relieve the squeeze. The unexpected wave of new money
cheapens its value and alleviates the pressure from tight
monetary conditions sending stocks and gold higher. What
Ray observed was 'another one of those' - a shift in conditions
relative to what people had expected.

Ray Dalio, fresh out of college, was then a clerk on the New York
Stock Exchange. Watching Nixon’s speech in his apartment,
he tried to fathom the implications. Paper money derived its
value from being a claim on gold. Now those claims wouldn't
be honored. The next morning he walked on to the chaotic floor
of the NYSE expecting stocks to plummet. Instead the Dow
Jones Industrial Average rose almost 4% and gold shot higher in
what was later dubbed the “Nixon rally.” Ray had heard Nixon’s
announcement but misunderstood its implications.
This event transformed Ray’s thinking about markets. Nothing
like it had ever happened to him before, so it came as a shock. He
quickly realized he couldn’t trust his own experience: anyone’s
lifetime is too narrow a perspective. So he began to study the
cause-effect linkages at work in the dollar devaluation and
subsequent market pop. He discovered the Bretton Woods
breakup was one of many seemingly unique occurrences that,
in truth, are more infrequent than unprecedented. A broader
perspective revealed that currency devaluations had occurred
many times throughout history and across countries, and were
the result of the same essential dynamics playing out under
different circumstances. Ray dedicated himself to understanding
what he would in time call the ‘economic machine’: the timeless
and universal relationships that both explain economic outcomes
and repeat throughout history.

The principles behind All Weather relate to answering a
deceptively straight-forward question explored by Ray with coChief Investment Officer Bob Prince and other early colleagues
at Bridgewater - what kind of investment portfolio would you hold
that would perform well across all environments, be it a devaluation
or something completely different?
After decades of study Ray, Bob, Greg Jensen, Dan Bernstein
and others at Bridgewater created an investment strategy
structured to be indifferent to shifts in discounted economic
conditions. Launched in 1996, All Weather was originally created
for Ray’s trust assets. It is predicated on the notion that asset
classes react in understandable ways based on the relationship
of their cash flows to the economic environment. By balancing
assets based on these structural characteristics the impact
of economic surprises can be minimized. Market participants
might be surprised by inflation shifts or a growth bust and All
Weather would chug along, providing attractive, relatively stable
returns. The strategy was and is passive; in other words, this was

Ray is now in his 60s. He founded Bridgewater Associates1 four
years after the Nixon speech. Reflecting back on that incident,
1.( Bridgewater Associates, LP manages $125 billion and is headquartered
in Westport, CT. This article was written by Paul Podolsky, Ryan Johnson, and
Owen Jennings based on interviews with key personnel who created the All
Weather strategy. The authors are all employees of Bridgewater. They struggled
to find the right voice because they are employees. We/they ultimately chose
to write this article in the third person, reflecting the perspective of outsiders
looking in on a creative process that began before any of us joined the firm.
1

perhaps most. Betas are few
in number and cheap to obtain. The cash rate is
after all controlled by a central bank. Bob. The corn and soymeal prices were the volatile costs
the chicken producer needed to worry about. which makes it hard to accurately assess the
attributes of any one part or the whole. and can
move up or down significantly. Stocks and bonds price
relative to and in excess of cash rates. While there are thousands of
investment products. so
too could a portfolio. forcing them to choose between raising their menu
prices or having their profit margins squeezed.
Among his clients were McDonalds and one of the country’s
largest chicken producers. There was
a long education process to convey the value proposition to a
2
. That is
the question (‘what kind of investment portfolio would you hold
that would perform well across all environments”) Ray. Ray suggested
combining the two into a synthetic future that would effectively
hedge the producer’s exposure to price fluctuations. If assets can be broken down into
different component parts and then summed up to a whole.
a discovery process
Ray founded Bridgewater in 1975 in his New York City
brownstone apartment. Given the decade plus of experience managing
liabilities.
This is an important insight. The
World Bank pension fund had been following Bridgewater‘s
research. Any return stream can be broken
down into its component parts and analyzed more accurately by
first examining the drivers of those individual parts. is a
function of a) the return on cash b) the excess return of a market
(beta) above the cash rate and c) the ‘tilts’ or manager stock
selection (alpha). he actively traded
commodities.
the active management was the value added. If you buy
and I sell. To do so. The competitive edge
was creative. Ray.
The evolution to managing assets occurred in 1987. The most important difference is the
expected return. not the investor.
corporate treasurer. corn. Once one strips out the
return of cash and betas. The
trick is to figure out what proportion of stocks. For any asset there is a
corresponding liability and.
portfolio building blocks
In time. The two are completely
separate. liability
management appeared to be an underserved market.
Bob and others managing $700 million in corporate liabilities. Alphas (i. His initial business
was providing risk consulting to corporate clients as well as
offering a daily written market commentary titled Bridgewater
Daily Observations that is still produced. Bridgewater approached the asset portfolio in the
same way. gained
from deviating from the benchmark. The bond benchmark was the risk neutral position. What
is unusual about the recent environment is the price of cash. The price
of a nominal bond can be broken down into a real yield and an
inflation component. a trading strategy) are
unlimited and expensive. A 10-year bond yield of 2%
is low relative to history but high relative to 0% cash rates. On the basis of this research and Bridgewater's
track record managing liabilities. The
investment may be marketed as a ‘large cap growth fund. A chicken is nothing
more than the price of the chick (which is cheap). not
the pricing of assets relative to cash. allowing
them to quote a fixed price to McDonalds. This way of thinking laid the groundwork for
constructing All Weather. After some thought. Dan
and others were trying to answer.
hiring Bridgewater and paying them based on performance
around this neutral position. It recounts how a series of conversations hardened
into principles that are the foundation of a coherent and practical
investment philosophy. Over time this approach had Ray. not
merely advising on what to do with them. The mutual fund blurs the distinction between
the moving parts. The key for most investors is
fixing their beta asset allocation. Consider buying a conventional mutual fund. only one of us can be right. There are few ‘sure things’ in investing. cash rates are now zero. however.” These were tailored analyses
that generally followed three steps. At the time. quality analysis. bonds and
commodities to hold such that a static portfolio is reliable. In the US after peaking above 15%
in the 1980s. Betas in aggregate and over time outperform
cash.
This early work reflected a truth. They wanted to
hedge but there was no viable chicken futures market. Ray
went to the largest producer with an idea. or any product. Today the All
Weather strategy and the concepts behind it are fundamentally
changing how the biggest capital pools in the world manage
money. Chicken
producers wouldn’t agree to sell at a fixed price because they
were worried that their costs would go up and they would then
take a loss on their supply contracts. In summary:
return = cash + beta + alpha
Many people. currencies and credit markets. What began as a series of questions has blossomed into
a movement. there are only three moving parts in any
of them. a) identify the risk neutral
position for the corporation b) design a hedging program to reach
that exposure and c) actively manage around that exposure.e. This article tells the story of how All Weather came
into being. That betas rise
over time relative to cash is one of them. Bob and others would
write a “Risk Management Plan. not trading the market well. alpha is a zero sum game. McDonalds was about to come out
with Chicken McNuggets and was concerned that chicken prices
might rise. and
soymeal. or alpha. The poultry producer
closed the deal and McDonald’s introduced the McNugget in
1983. The first step was to separate
out the beta from cash and alpha. Ray and Bob set their sights on managing liabilities. A corporate bond is a nominal bond plus
a credit spread.’ The
reality is that the return of that product. The price
of poultry depends on the price of corn and soymeal. don’t look at investment returns
from this perspective and as a result miss a lot. they opened a $5 million
bond account. relative to asset management.the best portfolio Ray and his close associates could build without
any requirement to predict future conditions.
The characteristics of betas and alphas are distinct.

So he had begun a program
to protect his portfolio using long duration treasury bonds. If the risks didn’t
offset. Ray said he
would get back to Rusty with a more fully fleshed out idea. concepts that could
be applied over and over again. The typical institutional portfolio had (and still has)
roughly 60% of its dollars invested in equities and as a result
almost all of its risk. Stocks were decimated. A key step was framing growth and
inflation as the environmental drivers that mattered and mapping
asset classes to these environments.
balancing growth and inflation
Over time these discrete discoveries . Investing in bonds. Now
that Bridgewater was managing pension assets. all assets are more or less the same.
As a result of this work.
Step one in the pension analysis was breaking down this
manufacturer’s pension portfolio into the three key components
described above (cash or the risk free position.
Ray. Merely getting asked the
question was a coup. beta. Bob and their other close associates knew stocks and
bonds could offset each other in growth shocks. The
brainstorming happened on a Friday. risk adjusting asset
classes – began to harden into principles. that growth will be above expectations.breaking a portfolio into
its parts. Bob and others knew that holding equities
made an investor vulnerable to an economic contraction. Rusty was an innovative
thinker and had begun deviating from conventional wisdom by
trying to construct a high-returning portfolio out of uncorrelated
returns. Dan and a few other Bridgewater employees
at the time worked all weekend to get Rusty an answer on how
to do this best.” Translation: all asset classes have environmental
biases. They do well in certain environments and poorly in
others.
the CIO of a large US-based consumer goods manufacturer
pension plan. Rusty
was struggling with what to do about nominal zero coupon
government bonds. suggesting it was
a great idea but that they should use futures to implement it so
that they could create any duration they desired.
Dan and others always thought first about risk.balancing and
risk-adjusting assets
The 1990 memo to Rusty put it this way. Rusty asked what Bridgewater thought about his
plan of using long duration zero coupon bonds in the pension
portfolio. recognizing environmental biases. The goal was an asset
allocation that didn’t rely on predicting when the deflationary
shift would occur but would provide balance nonetheless.
which are not as volatile as the stocks. “Bonds will perform best
during times of disinflationary recession. He wondered what
Bridgewater could add to this approach. Yet. particularly through economic shocks ranging from stock
market crashes to banking crises to emerging market blow ups
reinforced a confidence in the principles. The Great Depression was the
classic example of this. Bob. he correctly feared his portfolio was vulnerable in a
deflationary economic contraction. Investors should basically be compensated in proportion
to the risk they take on: the more risk. equity heavy portfolio
is akin to taking a huge bet on stocks and.” The long duration
bonds. would make the portfolio roughly
balanced to surprises in economic growth while not giving up
return. other pension
funds began exploring Bridgewater’s capabilities. In fact. yet.” Translation: when viewed in terms of return per unit of
risk. “I think your approach
to managing the overall portfolio makes sense. This made
sense. the higher the reward. The rest of the money was invested in
government bonds as well as a few other small investments. Not that long ago Bridgewater had been
a niche investment adviser and at the time it had very little
money under management.
particularly a deflationary one.
when risk-adjusted to stock-like risk. at a more fundamental
level. which
used much less cash than normal bonds. and cash will be the most attractive when
money is tight. owning the traditional. didn’t require an investor
to sacrifice return in the service of diversification.
Bridgewater's response documented two key ideas that would
later reappear in All Weather – environmental bias and risk
balancing assets. Bob. or futures equivalents. such as they
had mapped out for Rusty. such as rising
3
.e. Ray. eventually ending up in Westport. I would go
so far as to say that I think it makes more sense than any strategy I
have seen employed by any other plan sponsor. stocks will perform best
during periods of … growth. He thought they had too low a return to
justify a place in his portfolio and were cash intensive. Ray. the
equities needed to be paired with another asset class that also
had a positive expected return (i. Ray. at the
same time. Running these portfolios in real
time. while maintaining a high commitment to equities. there were a few
additional insights that would come before All Weather would
grow into a mature concept. Among
those for whom Bridgewater provided advice was Rusty Olson. Ray gave a quick answer on the spot. a beta) but would rise when
equities fell and do so in a roughly similar magnitude to the
decline in the stocks. This is the type of asset
allocation many investors held at the time and remains the basic
advice many investors still adhere to. Due to his equity holdings
Rusty was exposed to the risk that growth in the economy would
be less than discounted by the market. It was also true
as Rusty suspected that nominal government bonds provided
excellent protection in these environments.
The second key idea stemmed from their work helping
corporations hedge unwanted balance sheet exposures. They also knew there were other
environments that hurt both stocks and bonds. Quoting from the study: “lowrisk/low-return assets can be converted into high-risk/high-return
assets. and
alpha). Bridgewater began managing Rusty’s bond portfolio and
also overlaid their own alpha (this portfolio became their first
‘alpha overlay’ account). As a result. the client would be exposed. Ray wrote Rusty. Now an iconic CIO was asking their
counsel. The Bridgewater memo agreed that Rusty
should hedge this risk with long duration bonds that would have
roughly the same risk as his stocks. To 'hedge' this risk.
By this time Bridgewater had decamped from Manhattan to
rural Connecticut.

“I showed
it to Ray and he goes. Ray. which was what they used early on.
Growth
If Bridgewater is the pioneer of risk parity. Bob and Dan were obsessed with identifying
and articulating timeless and universal tactical decision-making
rules across most liquid financial markets. but rather a portfolio
that provided a real return. Think about any stress scenario and it ends up putting
a portfolio in one or two of these sectors unexpectedly. because the value
of any investment is primarily determined by the volume of
economic activity (growth) and its pricing (inflation). yet unknown surprises. Inflation-linked bonds. at this time
the focus of the key Bridgewater personnel was on alpha. Investors are always discounting future conditions and
they have equal odds of being right about any one scenario. Inflation-linked bonds play an
important role in All Weather. it captured future. Bob
was fiddling around with a new computer program. not
beta. A PC was a big step up in efficiency from a slide
rule or an HP hand-held calculator and graphs plotted by hand
with colored pencils.’” Bob recalled years
later. Though the ‘data’ indicated one
thing (to balance assets via inflation sensitivity) common sense
suggested another. and they were different from the surprises that
preceded the strategy but the strategy weathered them all. The
1970’s oil shocks. With these tools Bob began playing around to see how
shifting asset weights would impact portfolio returns.
so for it to keep operating in perpetuity it had to generate a 5%
real return. The concept of a security whose
principal value is tied to inflation dates to at least the 18th
century but in the early 1990s inflation-linked bonds were not
playing a significant role in institutional portfolios. like the 1920s German hyperinflation or the
US Depression. It also held true for more
extreme shocks. “Then he goes. eliminating the currency impact. global real yields were around 4% so a
little bit of leverage had to be applied to the inflation linked bonds
to reach the endowment’s target.’”
Initially the four box framework was used to explain alpha
diversification with prospective clients. The
framework is built for surprises in general. as long as one could find bonds paying 5% real
coupons. this one came out of a conversation. The
key was to put equal risk on each scenario to achieve
balance. That was obvious because they lived through these
shifts. was launched in 1991. it should
really also be balanced to growth.
factors. the disinflation of the 1980’s or the growth
disappointments post 2000 were all shifts in the environment
relative to expectations. but the general
pattern of surprises follows this framework. it is also true the
firm played a critical role in the acceptance of inflation-linked
bonds in institutional portfolios. Pure Alpha.
years before All Weather came into being.
Since the invention of the PC early Bridgewater employees had
utilized technology to collect and chart data and process decision
rules. The
three of them sought to construct a global inflation-linked bond
portfolio and hedge it back to the US dollar as a solution for the
endowment. Canada and a few other countries. the client’s
“risk-free position” was no longer cash.
or a series of them. Microsoft
Excel. ‘But it really should go beyond that.
Inflation
Rising
Going back to the building blocks of a given portfolio. The framework explained
the concept in such an intuitive and clear way that it became
the starting point of their conversations.inflation. The message .
the final ingredient:
inflation-linked bonds
This was classic Bridgewater. was that there weren’t any
of these bonds in the US at the time.
the very issue Ray had been wrestling with at the outset. however. There
were many economic surprises after Bridgewater started running
All Weather. As currency
and bond managers. There are all sorts of surprises in markets. Surprises
impact markets due to changes in one or both of those
Through their work for the foundation it became clear inflation4
. For a 1970s style environment it was much better to hold
commodities than it was to hold stocks and nominal bonds. To do so. They were issued widely in
the UK.' These were the
‘timeless and universal’ linkages Ray had set out to understand
in the 1970s. Ray proceeded to sketch out the four boxes diagram below
as a way of describing the range of economic environments any
investor has faced in the past or might face in the future.
market
expectations
Falling
This diagram tied key principles together and became a template
for All Weather. This framework captured them all. He found
that the best performing portfolio was 'balanced' to inflation
surprises. Bob shared his discovery with Ray. not specific surprises. Much as a portfolio can be boiled down to
three key drivers. would ‘guarantee’
this 5% hurdle. To be sure. Like the other
discoveries along the way. Ray. economic scenarios can be broken down to
four. A US foundation came to Bridgewater with a
question: how could they consistently achieve a 5% real return?
By law the foundation had to spend 5% of its money every year. This made some sense coming after the inflationary
1970s and the dis-inflationary 1980s. Microsoft had released the first windows based version of
it in 1987. This
notion was rattling around in conversations and became fully
formed for Bob in a simple experiment. ‘that makes sense. Bob and Dan knew how to hedge a bond
portfolio back to dollars. Australia.don’t blindly follow the
data. The main problem. The tactical strategy
that resulted from this work. They called these rules 'indicators. More
importantly. bonds that
pay out some real return plus actual inflation. At the time.

when the US Treasury decided
to issue inflation-linked bonds. which further helped codify the principles underlying
the All Weather approach. They also knew that all the asset
classes in the boxes would rise over time. Bob told Britt. came together
into a real portfolio. while hedging McNuggets. inflation-linked bonds
helped balance out both boxes and other asset classes in a
way no other asset class could (inflation-linked bonds are also
negatively correlated to commodities relative to growth. All Weather was never envisaged as a product. officials came to Bridgewater to
seek advice on how to structure the securities.
The second large client to adopt the All Weather approach was
a major automobile company.” The tech bubble implosion shifted the mindset of
the average investor. The portfolio
flew the way Bridgewater expected.
Rising
market
expectations
Falling
Growth
Inflation
25% of risk
25% of risk
Equities
Commodities
Corporate Credit
EM Credit
IL Bonds
Commodities
EM Credit
25% of risk
25% of risk
Nominal Bonds
IL Bonds
Equities
Nominal Bonds
early investors
Around that time.
Bridgewater had learned to map asset classes to the
environments through study. Bob and by
this point the third CIO. and then those
who have good uses for the money borrow it and use it to
achieve a higher return. The ultimate asset allocation mapped asset
classes onto the environmental boxes framework. They had just issued pension
obligation bonds because they were severely underfunded in
the aftermath of the 2001 stock market crash. and then combine
the two in such a way so as to reflect your relative confidence
in each. who had joined Bridgewater
out of college.
Ray described creating the portfolio “like inventing a plane that’s
never flown before. or managing inflation-linked bonds. As a result. underutilized asset class relative
to their structural correlation benefits. and it was someone’s part-time
job to rebalance the portfolio from time to time. but it remained purely for
Ray’s trusts. an
added benefit). then
CIO of a major corporate pension fund. which was a client of
Bridgewater’s. as shown in
the diagram below. The CIO wanted
to manage this “new money” from the bond issuance in a “new
way. From the environmental
perspective Bridgewater established.
the boxes don’t offset each other entirely. Britt called Bob up one Sunday and asked about
inflation-linked bonds and how they would fit into an investment
portfolio.
25 years in the making:
the all weather strategy
The fully formed All Weather emerged in 1996 as Ray. which tend to comprise a
tiny fraction of their overall portfolio. which leaves
just the risk premium to collect. The impetus was Ray's desire to put together a family
trust and create an asset allocation mix that he believed would
prove reliable long after he was gone. helping Rusty balance
his portfolio. It was
so unorthodox that Britt insisted on a massive due diligence
process. This is how a capitalist
system works. These securities by and large come in
two forms: equity (ownership) and bonds (loans). With the bursting of the
bubble came the realization that equities were by no means a
“sure thing. Bob began talking with Britt Harris. I want to be able
to pull the book off the shelf and show them all the work we did
to show that this makes sense. Bridgewater’s
recommendations in 1997 led to TIPS being designed as they
now are. whereas stocks
and nominal government bonds do not. Ray and others began propounding the concepts of
balance. “Let me tell you what I would do if I were
in your shoes.” The CIO sent out perhaps 30 letters to the top institutional
money managers in the world and ended up hiring five to manage
his “new money”. It
was profound enough that no one was doing it but at the same
time so straightforward that anyone could seemingly do it for
themselves. reminiscent of the disruptions of Bretton
Woods. The accumulation and
compounding of the investment principles Bridgewater had
discovered. Many
money managers began shifting towards alpha (tactical bets) as
a way to cope with what they perceived as a now-unstable stock
market. Bob and Greg advised this company to build a portfolio
based on principles the CIO could use for the entire fund: find
the best asset allocation. While US equities were in the early stages of the
tech bubble. A central bank creates money.
environmental exposures cancel each other out. find the best alpha. the oil shocks and the 1987 stock market crash. Bob and Britt knew each other from coaching
their children together and their children’s’ common nursery
school. Unsurprisingly. Bridgewater was one of them. Most investors do not
hold any assets that perform well when inflation surprises to
the upside outside of commodities.” The portfolio he described and they built for Britt’s
pension plan – as you might expect – was All Weather.” It looked right. Inflation-linked bonds
do well in environments of rising inflation. the bonds
filled a diversification gap that existed (and continues to
exist) in the conventional portfolio.
The crash of 2000 changed that.linked bonds were a viable. As a result. The
Ray. sought to distill decades of learning into a single
portfolio. Greg Jensen. the net return of the
assets in aggregate are positive over time relative to cash. but would it fly? He started
running a pilot with his assets. ’when
the regulators come and ask me the question. initially to rather indifferent interest. The eventual total portfolio ended up being a roughly
70/30 split between beta and alpha (All Weather and Pure
5
. As Bob recounts. “Britt said.’” The pension fund started with a
$200mm allocation.

The idea of
leverage also raised questions. Leverage is an implementation tool. Often Bridgewater people are asked at
a cocktail party or a family gathering what to invest in. That wouldn’t be useful
anyway – the portfolio moves around. One of the largest
Canadian pension plans adopted All Weather as the benchmark
for their entire plan. A
clever consultant adopted the term “Risk Parity” and created
an asset allocation bucket thereby opening the floodgates to
strategies that one way or another seek to balance risks in a
portfolio. (2) inflation falls. However. the result of three
decades of learning how to invest in the face of uncertainty. futures
and swaps). and over-optimize.
All Weather grew out of Bridgewater’s effort to make sense of the
world.Alpha. leading them to over-complicate. Bridgewater’s actively-traded portfolio). If instead you invest $5 in the S&P and $15 in 10 year bonds the portfolio
is much more balanced.
Overconfidence often pushes people to tinker with things they
do not deeply understand. All Weather is built very
intentionally to not be that way. after nearly a decade of poor performance and the
credit crises of 2008. Bridgewater instead accepts the fact that they
don’t know what the future holds.
the portfolio risk is dominated by the S&P because it is much riskier than the
bonds. reliable asset allocation they can hold for the
long-run. then it seems
reasonable to hold a mix of assets that can perform well across
all different types of economic environments. Leverage helps
make the impact of the asset classes similar. LP. to hold the portfolio today that will do reasonably well 20
years from now even if no one can predict what form of growth
and inflation will prevail.
highly-diversified portfolio is less risky than an unleveraged. The novelty was
the All Weather component. In essence. With the All Weather approach
to investing.
over-engineer. correlations.(As an example. A recent survey indicated most institutional
investors are familiar with the concept and 25% are using it in
their portfolio. though that of course means the vast majority of
investors aren’t yet using what is effectively new technology. though with a lower return. there was a big question over where
exactly All Weather would fit in or who would own the profit and
loss.
6
. That’s it. It was slowly becoming apparent
that some of their clients were recognizing the benefits of
environmental balance and diversification and would be willing
to hire Bridgewater to implement this for them. Bridgewater’s answer is All Weather. When investing over the long run. Anything
else (asset class returns. and (2) asset volatility will be largely driven by
how economic conditions unfold relative to current expectations
(as well as how these expectations change). All Weather can be
sketched out on a napkin. It is as simple as holding four different
portfolios each with the same risk. They don’t
delve into the active alpha portfolio. What the average person
needs is a good. There is no limit to how the All Weather
principles of balance can be applied and over time could perhaps
contribute to a more stable financial system.. investors were hungry for an alternative.2
PLEASE NOTE THAT ANY CLIENTS REFERENCED IN THIS ARTICLE
ARE REFERENCED SOLELY FOR HISTORICAL CONTEXT. and thus choose to invest in
balance for the long-run. or even precise volatilities)
is an attempt to predict the future. each of which does well in a
particular environment: when (1) inflation rises. If you
can’t predict the future with much certainty and you don’t know
which particular economic conditions will unfold.
the elegant solution
Fast forward to today. Some are
introducing these concepts into defined contribution plans as an
investment choice. all you
can have confidence in is that (1) holding assets should provide a
2. Peer risk dissuaded some investors for fear that they
wouldn’t track their benchmark or peer group. and (4) growth falls relative to expectations.g.
return above cash. OR THE
ADVISORY SERVICES PROVIDED. And last. Invest $5 and $15 in the
manner described and add a bit of leverage and the portfolio has the same
return as the stocks but less risk.
(3) growth rises. IT IS
NOT KNOWN WHETHER ANY CLIENTS LISTED APPROVE OR
DISAPPROVE OF BRIDGEWATER ASSOCIATES. if you invest $10 in the S&P 500 and $10 in US bonds. undiversified portfolio. there was still resistance to the All Weather
concepts.
To be sure. As
investors grew accustomed to looking at leverage in a less blackand-white way – “no leverage is good and any leverage is bad”
– many have come to understand that a moderately-levered. Ray's
trust assets remain invested in All Weather. Some were wholly unfamiliar
with the concepts of financial engineering and therefore were
initially uncomfortable with derivative instruments (e. Other organizations have completely
revamped their structure into alpha and beta teams.
Gradually objections surrounding All Weather eased.